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$BAC: America’s Oil Boom Will Strengthen the Dollar, Uptick Investment Flow, and Create A New Competitive Edge

“BofA Merrill Lynch strategist David Woo is out with a report this week on the changing nature of the U.S. dollar’s relationship with oil prices and what it means for the future of the American economy.

The main conclusions of the piece are that a stronger dollar will help remove volatility from the business cycle in the U.S., make more people want to invest in U.S. assets, and further enhance U.S. economy’s competitiveness vis-a-vis China and Europe.

All of this is thanks to the American energy boom.

Woo says that the biggest surprise of 2013 so far has been the noticeable decoupling of a longstanding negative correlation between the U.S. dollar and world stock prices – “one of the most enduring features of financial markets over the past decade” – as illustrated in the chart below.


U.S. dollar versus world stock prices

BofA Merrill Lynch Global Research

U.S. dollar versus MSCI world stocks (click to enlarge)


According to the report, a big component of this inverse correlation between the U.S. dollar and global growth over the last decade has been the rise in Chinese energy consumption….”

Full article and charts

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